By Pat Hutchinson MBE, District Manager, Citizens Advice Newtownabbey
Q: I am planning to start saving in the New Year. Could you please give me tips on how to save?
A: Before you start saving, it’s important to take a fresh look at your finances.
There are three main things you need to look at to understand your finances:
• Your debts - You need to make sure you’ve cleared any debts before you start saving because any interest you earn on your savings will be wiped out by the interest you owe on your debts.
• Your budget - It’s essential to have an accurate picture of exactly how much you spend over the year, to find out if you can release any extra money to put into savings.
• Your future plans for retirement - Saving through a pension can be a very efficient way to save for the future.
Pay off your debts first - If you’re in debt, you should use any spare cash to pay off your debts before you think about saving.
If you’re behind with things like your mortgage, rent or rates, you should pay these off first. These kinds of debts are called priority debts. But even if you don’t have priority debts, you might want to think seriously about clearing any non-priority debts such as credit card debts and non-secured personal loans with your spare cash, before you start saving anything.
Look at your budget - The best way to see whether you’ve got any money to spare for savings is to work out how much you spend every month and compare it with the money you’ve got coming in. This is called your budget.
You should also look carefully at your spending to see if there is anything you can cut down on. This might make money available for you to put aside.
Review your current and existing savings accounts - You should also review your current account and think about switching to one that pays interest if you know you are always going to be in credit.
Take a look at your retirement plans - Before you divert money into savings or investments, you should think about working out how much you will need to live on when you retire and decide whether you can afford to put some money into a pension.
Saving through a pension plan is one of the most efficient ways to save because all your contributions are tax free. It is also important to start saving into a pension as soon as you can because your pension fund will have more chance to grow and earn money.
Should you save or pay off your mortgage early? - If you’ve got cash to spare, you might want to think about using it to pay off your mortgage early, rather than putting it into a savings account. Some mortgages allow you to do this by paying extra each month.
Paying off your mortgage early could save you thousands of pounds in interest charges and might be more cost effective than saving the money.
Make sure you’ve got enough put by to cover emergencies - You may need money to cover an unexpected emergency such as illness, an accident or losing your job. If you are used to a reasonable income, you may find that state benefits isn’t enough to cover all your expenses.
It is a good idea to get a Benefit Check carried out to make sure you are getting all you are entitled to.
• Get free, confidential and independent advice from your nearest Citizens Advice – go to www.citizensadvice.org.uk/nireland or call at: Citizens Advice Newtownabbey, Dunanney Centre, Rathmullan Drive, Rathcoole, Newtownabbey, BT37 9DQ. Telephone advice is available 9am – 4pm each day on 028 9085 2271 (Lunch 1:00 - 1:30pm), email advice is available at firstname.lastname@example.org